Energy Depletion

July 18, 2007

Ed Rendell has been in politics for too long. That is the only way to explain his apparent belief that Harrisburg politicians know more about which alternative energy prospects are best than do the field’s best researchers and innovators.

Increasing energy usage and high, though hardly unprecedented, prices at the pump have many Pennsylvanians concerned. For decades, many have looked for the elusive alternative energy source that will allow the entire nation to wean itself off oil and other non-renewable resources.

Large-scale wind farms were once the craze in Europe, followed by the realization that wind energy was impractical as a national solution. Solar energy has thus far proven prohibitively expensive. And now ethanol, though considerably more mundane, is being touted as the solution to our future energy needs.

The alternative fuel that will reduce oil dependency may be among those currently in development, or perhaps it has yet to emerge. However, Gov. Rendell touts an energy proposal predicated on the idea that political appointees are the best suited to direct investment in alternative energy sources.

There is an unmistakable hubris in this assumption, and in the boldness of the Rendell energy plan. The governor seeks to impose a tax—euphemistically termed a “systems benefit charge”—on consumers’ energy bills, ranging from roughly $6 a year for residential consumers to an average of $300 per year for small businesses, with a cap of $10,000 for large industries. This tax will repay the $850 million in new debt, issued to offer grants to selected alternative energy corporations and fund “clean energy economic development projects.”

Whenever government proposes a massive spending increase, citizens would be well advised to follow the example of the Roman orator Cicero and ask cui bono—who benefits? The governor and his energy policy allies in the General Assembly, both Republicans and Democrats, want citizens to believe that they do; that this plan will save them money, foster energy independence, and promote a cleaner environment. However, the proposed legislation tells a very different story.

The cornerstone of Rendell’s energy plan is the creation of the Energy Independence Fund, which political reporter Pete DeCoursey aptly termed a “hedge fund run by politicians.” Armed with an $850 million budget managed by political appointees, the fund would be charged with distributing subsidies to corporations in the alternative energy industry. Unfortunately, such a plan rewards existence, not success, and serves to discourage the most important aspect of alternative energy research and development: market viability.

The ultimate goal is, presumably, alternative energy that consumers can afford, but the proposed energy plan ignores such considerations, vesting the power to direct investments in the hands of a few political appointees. For every unviable avenue of research propped up by state handouts, potential future energy sources languish as corporations rush to where the money is.

Pennsylvanians are asked to believe that politicians and an army of political appointees understand energy research and consumer demand better than, say, energy researchers and individual consumers. Belief is not enough; citizens are expected to pay for this vision of a planned economy. Innovation rarely flourishes under the watchful eyes of bureaucrats, yet Rendell’s plan presupposes that the most efficient allocation of resources in this complex field will emerge when political appointees make the decisions.

Consider the many missteps of the infamous Pennsylvania Gaming Control Board. Imagine those same people making the decisions that will affect the direction of energy research in this state for decades to come. And imagine that you are being asked to pay for it, and will do so long after Rendell and every legislator who voted for the plan is gone.

The costs of this plan include higher tax burdens on businesses (disproportionately levied on small manufacturers, placing them at a disadvantage against larger firms whose taxes are capped) and more expensive energy sources, such as mandatory ethanol-blended gasoline which, though not environmentally advantageous, will contribute to higher prices at the pump.

The recipients of what can only be termed corporate welfare are the corporations that distinguish themselves not by becoming leaders in the provision of alternative fuels, but by the effectiveness of their lobbying. The plan is a boon to politically-connected corporations.

It is no victory for those hopeful for the emergence of an alternative energy source with real potential. An energy plan which misallocates resources to inefficient and exorbitantly expensive solar panels and dedicates funds to a massive ethanol subsidy can only hamper development in more promising fields, at considerable expense.

Who benefits from such a plan? This much is certain: not the taxpayers.

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Jared M. Walczak is a research intern with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.